Monday’s $69 billion 2-year note sale resulted in some soft demand. Markets were only slightly impacted.
High yield: 4.708%, versus 4.705% when-issued. That’s a tail of 0.3 basis points, meaning the auction priced slightly worse than traders expected going in. A tail is a mild negative.
Bid-to-cover: 2.59, versus a 2.62 average over the last 12 auctions. That’s how many dollars of bids came in for each dollar sold. A little below average.
Indirect bidders: 45.7%, versus 58.7% on average. These are mostly foreign central banks and large institutions. That is a big gap, and it’s the weakest part of the auction.
Direct bidders: 41.3%, versus 28.9% on average. These are domestic buyers who bid directly, like some money managers. It was well above normal.
Put together, the usual big buyers showed up less than usual, but a different group stepped in. The auction cleared fine, with a small tail.
Why indirect versus direct matters
Indirect demand falling that far below average draws attention. Direct demand being unusually high partly offsets it.
Treasuries started slightly weaker, climbed in the first couple of hours, ran into resistance, and returned to where they began. Here’s where yields stood:
2-year: 4.71%, up 3 basis points
3-year: 4.77%, up 2
5-year: 4.82%, up 1
10-year: 4.98%, down 1
30-year: 5.29%, down 2
Shorter maturities rose a little, which is what you’d expect after soft demand for 2-year paper. Longer maturities held up, keeping 10s and 30s near one-month lows. The 10-year sits just below its 50-day moving average of 4.989%, which technical traders watch.
Bottom line
This was a “meh” auction. Demand was a bit light, the tail was tiny, and the mix of buyers shifted.